Even if you have a valid trading system and good risk management if you don’t have the right trading psychology you will not be able to execute it consistently over the long term.
Here are the 10 principles of trading psychology that separate the winning traders from the losing traders.
- Stop looking for a Holy Grail of trading. There is no perfect trading strategy that works every time, quit looking for it and focus on a profitable system that fits your own risk tolerance and return goals.
- Accepting that all trading systems and traders have losing trades and drawdowns. Not wanting to lose can cause a trader to never take the risks needed to have winning trades.
- Stop asking for other people’s predictions and opinions. Focus on what is happening in the markets and what it is signaling not what you or anyone thinks should happen.
- Have entry signals that tell you the best time to get into a trade. Get into a trade when the risk/reward ratio is favorable.
- Have exit signals that tell you the best time to get out of a trade. Have a plan to exit a trade and lock in profits while they are still there.
- Exit a trade when price action shows your trade didn’t work out. Admit when you are wrong and keep your losses as small as possible.
- Trade based on your system not your emotions or ego. Don’t let your own fear, greed, or ego direct your decisions in the markets.
- Keep a positive mindset. Focus on the success of following your system with discipline and everything good that happens in your trading. Be careful to not focus on the negative.
- Overcome the fear of trading real money. There comes a time to trade after you do all your homework. After you build a trading system with an edge and understand position sizing and the reality of an equity curve then you have to start trading your capital. Some never have the confidence in their system and their self to execute it and start trading.
- Focus on your future goals not your present setbacks. If you focus on your long term goals and are willing to do whatever it takes to be successful only time separates you from success.
To trade you must have the faith in your trading system that it will be profitable over the long term and confidence in yourself to trade it with discipline.